Oil rises amid Iran nuclear deadlock, tropical storm concerns

NEW YORK - Oil prices rose yesterday on a threat of new sanctions against Iran and as Tropical Storm Dolly headed into the Gulf of Mexico, prompting a hurricane watch for parts of Texas and Mexico.

Light, sweet crude for August delivery added $2.16 on the New York Mercantile Exchange. It was oil's first gain in a week.

For drivers in the United States, pump prices eased by a few pennies. A gallon of regular gasoline now sells for an average just shy of $4.07, according to auto club AAA, the Oil Price Information Service, and Wright Express. Diesel prices also pulled back, to an average of $4.82 a gallon.

Retail prices may decline even more in the coming days as gas station operators catch up to last week's four-day oil sell-off, which left crude more than $18 below the trading record of $147.27 it hit on July 11.

Energy traders bid oil prices up after a weekend meeting between Iran and six world powers, including the United States, failed to break the deadlock over Iran's disputed nuclear program.

In her first public comments since Saturday's meeting in Switzerland, Condoleezza Rice, the US secretary of state, accused Iran of not being serious at the talks despite the presence of a senior US diplomat, and warned it may soon face new sanctions. The six nations have given Tehran a two-week deadline to freeze suspect activities and start negotiations or be hit with new penalties.

Iran is OPEC's second largest oil producer and is estimated to be number two in terms of global natural gas reserves.

Investor perception about the likelihood of conflict between Iran and the West has been a major reason for oil's rise in recent months. Traders fear Tehran could respond to an attack aimed at halting uranium enrichment by blocking oil supplies in the strategic Straight of Hormuz, a passageway that handles 40 percent of the world's tanker traffic.

"The buying has picked up . . . as US traders return to their desks after a weekend in which the only outcome to the much-anticipated talks in Geneva between Iran and the West was disappointment," Addison Armstrong, Tradition Energy's director of market research, said in a research note.

Oil prices also rose yesterday on concerns that Tropical Storm Dolly may disrupt operations in the Gulf of Mexico.

Royal Dutch Shell PLC began evacuating workers from some work sites in the western part of the Gulf, although it said it did not expect Dolly to affect production.

"You see oil companies evacuate personnel . . . that will lend support to prices," said John Kilduff, senior vice president for risk management at MF Global LLC in New York. He predicted other companies would pull workers off rigs as a precaution.

Natural gas prices, which have fallen sharply since early this month, continued their slide. August futures fell 6 cents to settle at $10.51 per 1,000 cubic feet.

In other Nymex trade, heating oil futures rose 5.64 cents to settle at $3.7479 a gallon while gasoline futures rose 4.62 cents to $3.2171 a gallon.